More
and more communities have shifted control of public water utilities to
private companies in recent decades. A combination of forces is at work:
shrinking public revenue, looming costs for long-overdue capital
improvements, and a widening perception that private operators run
systems more efficiently.

Most
Americans still get their household water from a
public-owned-and-operated service. But nearly 73 million people now are
served with help from a private company, according to a 2011 report by
the National Association of Water Companies.

From
the consumer's perspective, privatization's results have been mixed. In
some cases, cities have retaken control of their water services. And not
every private provider has delivered on promises of reduced rates. But
to governments strapped for cash, the option is seen as increasingly
attractive.

Here,
two policy experts exchange views on what is best for our communities.
Richard G. Little is a senior fellow at the Sol Price School of Public
Policy at the
University
of
Southern California
. Wenonah Hauter is the executive director of Food and Water Watch, an
advocacy group for food and water quality.

Yes: We Need the Investment

By
Richard G. Little,Sol
Price School of Public Policy at the
University
of
Southern California

Our
nation's aging drinking-water systems will require staggering amounts of
investment in the coming decades—as much as $1 trillion over the next
25 years, the American Water Works Association estimates.

As
things stand now, this burden will fall mostly on the public water
utilities that serve about 80% of the
U.S.
population.

But
these bodies don't have the money to pay such bills. Many of them
already have put off necessary improvements for years due to
insufficient public funding. And there is little chance of meaningful
federal aid, given the national focus on debt reduction.

The
root of the problem is the artificially low rates the public utilities
have charged for years. These rates, kept low for political purposes,
don't come close to supporting the long-range capital investment we
would expect of any well-run business. Indeed, given the enormous
backlog of investment needed, perhaps a little "gold-plating,"
as my opponent calls it, is long overdue.

Rates
With a Purpose

Broadly
speaking, a privatized utility can be expected to charge rates that not
only cover costs but also encourage investment, innovation and
technological advancement. With privatized water, there is a new
emphasis on fiscal responsibility—and measurable efficiency gains.
This has been documented repeatedly in credible studies by objective
academic researchers using real-world data.

The Wall Street
Journal

Is
privatization the solution in every case? Of course not. We must strive
to find what works best for the customers in a specific situation.
Mismanagement is not a problem limited to private operators, just as
good management is not intrinsic to public systems.

But
private management can be successful much more often than its critics
would like to believe. Private-sector managers focus on the cost of
service and return on capital. The new and innovative technologies in
which they invest may have a higher initial cost, but they offer
savings, too, which can be shared with customers while improving service
and quality. Privatization offers economies of scale wherein a single
company can provide the financial and human resources to serve many
small systems in a far more cost-effective manner.

Government-owned
enterprises, by contrast, often don't have rate structures that reflect
the true cost of the service. Thus many small publicly owned water
utilities lack the means not only to make capital investments but also
to hire the professional staff needed to meet increasingly stringent
water-quality standards.

Critics
say private enterprise's desire for profits leads directly to
overcharging (particularly of the poor), deterioration of service, and a
loss of public input and transparency. In practice, however, this is not
the case.

Years
of Neglect

While
it is true that rates often tend to rise following a privatization or
the execution of a concession agreement, this is more often because the
new operator must finally address decades of disinvestment. If the
public operator had focused on efficiency and long-term financial
responsibility as much as it focused on social and political goals, in
most cases the rates likely would have risen already to much the same
level.

The
public interest is not well-served by keeping prices so low for
everyone, including those who can well afford to pay, if it means there
is insufficient revenue to support routine maintenance and renovation.
On the contrary, a good system, public or private, keeps rates low for
essential needs and increases consumption charges rapidly to discourage
excessive use. The idea of asking commercial and industrial users to
subsidize residential usage—as some privatization opponents
suggest—only encourages wasteful practices such as watering expansive
lawns, which disproportionately benefits the more affluent, not the
poor.

Similarly,
establishing a federal trust fund to maintain public water systems would
leave communities with little incentive to pursue best practices for
capital investment or financially sustainable rate structures. In
essence it would penalize customers of well-run systems, public or
private, and reward those of poorly managed ones—requiring federal
assistance for whatever the local body chooses not to pay for.

Ultimately,
the best water provider is the one that is best able to deliver safe,
reliable and accessible service. If the provider can also make a profit,
that should be of less concern than its ability to deliver safe and
affordable drinking water.

Mr.
Little is a senior fellow at the
Sol
Price
School
of Public Policy at the
University
of
Southern California
. He can be reached at reports@wsj.com.

No: The Public Won't Be
Served

By
Wenonah Hauter,Food
& Water Watch

Privatization
is not the solution for deteriorating public water systems already
feeling the double-pinch of dwindling local and federal funds.

Private water providers are
businesses. They are motivated mainly by their bottom line. The pressure
to deliver high rates of return for shareholders drives them to cut
corners when they are operating under contracts, and to drive up costs
when they are operating as regulated utilities. The latter is a
well-established phenomenon known as the Averch-Johnson Effect, named
for the economists who first modeled it in the 1960s. Under
rate-of-return regulation, investor-owned water utilities make more
money when they invest in infrastructure, giving them an incentive to
"gold plate" systems. Yes, they are investing in improvements.
But they may build an unnecessarily large treatment plant or choose a
more capital-intensive treatment process, such as desalination.

Private
companies that operate water systems have appalling track records of
rate increases, poor system maintenance, faulty billing practices and
other failures, sometimes even jeopardizing the health and safety of
local residents.

Pulling
Back

Some
municipalities have taken their water systems back from private water
providers. Indeed, some are realizing what cities like
New York
,
Baltimore
and
Boston
realized a century ago—that water is best controlled by an entity that
is accountable to the public, not outside shareholders.

Water
service isn't a business enterprise; it's a basic human right, and what
privatization proponents refer to as "political pressure" is
actually our democratic processes at work. Our elected leaders should
absolutely respond to public concern about the affordability of their
water service. The provision of water service is a natural monopoly, and
the public can exercise choice only at the ballot box through the
election of the officials who oversee the service. How government-run
utilities decide to allocate costs among different users is a local
decision that should be made in an open and democratic manner.

Those
who advocate privatization say it's not in the public interest to keep
rates low for everyone, thus hurting a system's ability to afford
capital improvements. But it can be administratively cumbersome to
design rates in an equitable way that charges higher-income households
more while ensuring that water service is affordable for low-income
households. It is especially difficult in dense urban areas where
outdoor water use is minimal and lower-income households tend to use
more water because of their older homes and larger household sizes.

Too
Big

But
while customers can and should provide some portion of the funding for
water systems, it isn't possible for them to fully fund large
capital-intensive infrastructure projects. Full cost pricing would
disproportionately burden low-income households, possibly making water
service unaffordable for many families.

Rather
than privatizing water systems or asking household users to pay more,
why not ask commercial and industrial water users to pay more for the
services they profit from? We should also ask the federal government to
establish a dedicated source of federal funding in the form of a
clean-water trust fund, similar to the program that provides funding for
highways. This would provide a guaranteed source of funding for
replacing and maintaining public infrastructure systems, thereby
alleviating communities of the burden of having to finance improvement
projects on their own.

When
it comes to efficiently and affordably providing water to our
communities, public control trumps private profits.

Ms.
Hauter is the executive director of Food and Water Watch. She can be
reached at reports@wsj.com.